Syndications Still Make Sense..If You Know What to Look For"
Denise SuppleeBusiness Member
Realtor · Willow Grove, PA · Member since 2017 · 991 posts · 647 votes
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Syndications Still Make Sense..If You Know What to Look For"
Most Popular Reply
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1yQuote from @Michael S.:
@Denise Supplee - ok, you asked the question, so I'll give you an honest and blunt answer.
I wouldn't touch a real estate syndication in general whatsoever at present. Maybe if I knew the GP personally, perhaps. Otherwise, zero chance.
The number of investors who have lost 5 to 6 figures in the past year is wild to me. Returns are irrelevant when you lose your whole initial investment.
We've lost 5 figures on flips before. The difference is: we know why we lost the money, we can learn from the mistakes made, and no one else pocketed my money (not saying this happens with all syndications whatsoever, but it likely has with some of them over the years).
Also, there is a lot of tangible value to having control of your own money. With a syndication as an LP, you write a check, and hold on for the ride. No thanks. I get plenty of that either investing in the stock market or going to the amusement park with the kids (although amusement parks usually don't accept checks).
I think it depends on the syndicator, if you were investing in a youtube guru fund, yep you got crushed. But if you were investing in an experienced operator and / or in something diversified, you would have been fine. Not every asset type got whacked the last few years, the ones that did were the ones promising very high returns and mostly led by marketing professionals and not real estate asset managers.
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6 Replies
- Huntsville, AL · Member since 2018 · 578 posts · 864 votes1y
@Denise Supplee - ok, you asked the question, so I'll give you an honest and blunt answer.
I wouldn't touch a real estate syndication in general whatsoever at present. Maybe if I knew the GP personally, perhaps. Otherwise, zero chance.
The number of investors who have lost 5 to 6 figures in the past year is wild to me. Returns are irrelevant when you lose your whole initial investment.
We've lost 5 figures on flips before. The difference is: we know why we lost the money, we can learn from the mistakes made, and no one else pocketed my money (not saying this happens with all syndications whatsoever, but it likely has with some of them over the years).
Also, there is a lot of tangible value to having control of your own money. With a syndication as an LP, you write a check, and hold on for the ride. No thanks. I get plenty of that either investing in the stock market or going to the amusement park with the kids (although amusement parks usually don't accept checks).
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Michael S.:
@Denise Supplee - ok, you asked the question, so I'll give you an honest and blunt answer.
I wouldn't touch a real estate syndication in general whatsoever at present. Maybe if I knew the GP personally, perhaps. Otherwise, zero chance.
The number of investors who have lost 5 to 6 figures in the past year is wild to me. Returns are irrelevant when you lose your whole initial investment.
We've lost 5 figures on flips before. The difference is: we know why we lost the money, we can learn from the mistakes made, and no one else pocketed my money (not saying this happens with all syndications whatsoever, but it likely has with some of them over the years).
Also, there is a lot of tangible value to having control of your own money. With a syndication as an LP, you write a check, and hold on for the ride. No thanks. I get plenty of that either investing in the stock market or going to the amusement park with the kids (although amusement parks usually don't accept checks).
I think it depends on the syndicator, if you were investing in a youtube guru fund, yep you got crushed. But if you were investing in an experienced operator and / or in something diversified, you would have been fine. Not every asset type got whacked the last few years, the ones that did were the ones promising very high returns and mostly led by marketing professionals and not real estate asset managers.
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- Huntsville, AL · Member since 2018 · 578 posts · 864 votes1y
@Chris Seveney - totally agree with your post.
That said, the OP asked "Curious: what’s your biggest filter for saying yes to a deal right now?" I answered the question directly just for myself. I'm sure there are many people on BP investing in syndications right now, and there are also certainly folks who did indeed make money over the past couple of years in syndications. That's great.
They are just not for me for the reasons stated above. No one had responded to the OP yet, so I just gave my thoughts on it.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Michael S.:
@Chris Seveney - totally agree with your post.
That said, the OP asked "Curious: what’s your biggest filter for saying yes to a deal right now?" I answered the question directly just for myself. I'm sure there are many people on BP investing in syndications right now, and there are also certainly folks who did indeed make money over the past couple of years in syndications. That's great.
They are just not for me for the reasons stated above. No one had responded to the OP yet, so I just gave my thoughts on it.
My yes is the sponsor and the investment fundamentals. Is the sponsor have experience, are they focused (are they running 1-2 types of funds or they doing MF, retail, office, oil/gas, MHP, etc). What are the fundamentals behind it (numbers). I am not a I want to hit grand slams type of person, so I never chased big returns, I want diversity outside of the stock market and am ok with market average returns for my investments that I am passive in.
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- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes1y
@Denise Supplee, I wouldn't say there is a single factor yes. Because, first it needs to be an asset class I generally believe in to create strong returns with minimal risk.
Then it has to be a group that is both professionally run, with a clear focus, and also strong alignment of interest.
Within the alignment: it gets to what Michael was alluding to: the groups that are run to make the sponsors rich right away with copious fees, no true co-invest, egregious waterfalls, etc.
Ultimately, it looks like a combination of Michael's and Chris's comments. There are some syndicators out there that have investor losses, realized or unrealized, that have learned from their lessons. I.e. if you are doing capital calls and "pref equity" raises to bail out your floating rate deals, while still buying new properties with floating rate debt, you have not learned anything. But, if the sponsor is investing a $100k into a $10mm raise on a $30mm asset with a 3% acq fee and another 1% financing fee, even if it is fixed rate debt, this sponsor both has no co-investment ("investing $100k to make $1mm at closing" is not co-investment) and has no real alignment given the fee load relative to potential carried interest value.
We can also get into anticipated hold timelines, who the management team is, what the management fees are (if internally managed), NOI projections on current deals relative to actuals, etc.
To Michael's point, there are not a lot of syndicators discussed on these forums that elicit much confidence in being able to add any real alpha to deals.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes1y
Today is a better time to invest in syndications. For those who invested from 2020-2022, many of the deals are underwater and will either lose money or make very little. Today, most deals are being bought with better fundamentals.
The key to me is to invest in quality sponsors that are purchasing assets in good locations, with long-term fixed debt, with actual real-time cash flow. With those metrics, deals can withstand bumps along the way. Cash flow was ignored in the last cycle. If you're an LP make sure that you dig into the numbers to be sure there is real cash flow (not money paid to investors with reserves).
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